Canada's Largest Pension Fund Manager is Actively Managed Today's CEO talked about the challenges of slowing economic growth, rising inflation and weakening stock markets on Thursday.
Simply exposing capital to the market has been a “winning strategy” for the last decade, with increasing praise.
However, heightened geopolitical tensions, supply chain disruptions, blockades, and weakened public markets make it increasingly difficult for investors to navigate.
"This tough situation may seem overwhelming, but in many ways CPP investments were built for these times," John said. Graham said in a speech at a luncheon to the Canadian Club in Toronto.
"We have been specially designed to create value over the very long term and be resilient in the face of a wide range of market and economic conditions."
Inflation is expected to continue to rise in the short term, largely because supply-side issues have not been resolved, Graham said. He pointed out the war in Ukraine that disrupted the blockade of pandemics, national security, and the delivery of key materials that fuel the world economy.
The key is active management and diversification to mitigate risk and provide a more resilient portfolio to 21 million contributors and beneficiaries.
This means investing in a wide range of asset classes and growth-oriented companies that perform differently throughout the business cycle.
For the past decade, the capital markets have been in a “giving mood” and ensuring market exposure has been a good strategy. However, aggressive management shows its value when markets are volatile and face rising geopolitical tensions.
"It's hard to get this benefit if you're primarily a purely passive investor," he said.
"Active management best protects today's market conditions as it becomes an investor market and global growth slows."
Graham said financial institutions' flexibility does not mean they are unaffected by market volatility or that a year or two will be tough.
The pension fund outperformed other large Canadian pension funds with a 6.8% return last year to $ 538 billion. The 10-year return was 10.8 percent.
"This means we are in a good position to survive the storm in the long run."
Graham says CPP is not at the bottom of the market. He said he would continue to invest and look for quality assets.
However, he said that closing a deal is more difficult due to the large gap between buyers and sellers in terms of price.
"Short-term funding is on the sidelines, so there is less competition for quality assets."
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